October 26, 2014

What NOT to Spend On In Your Startup

Cut startup costs

Most articles are great at listing all the things you can spend your limited startup funds on.  But through experience, we’ve learned some lessons about wasting money and how to avoid the nonessential aspects of a startup.

Here is my list of things NOT to spend on if you can avoid it in the first 6 months.  By spending wisely you preserve your funds for the things that count. Also, in the first 6 months of your business you have certain priorities — this list will keep you on track.  I’m not saying to NEVER spend on these things – in fact depending on your business you may have to spend on some of them — just think carefully in the first six months.

Conferences - They can be expensive and distract you. In the first six months your head should not be on conferences unless you can calculate a specific dollar ROI from going (such as, you’re being paid a speaking fee).

Travel - Travel is not only expensive, but you are less productive during travel. When I travel, I’m lucky to get one-third of my normal daily workload handled.  Aside from a critical sales call that you simply MUST attend — use email and phone instead. Skype video conferences and Google Hangouts are two free substitutes for in-person meetings.

Offices - “Real Estate is the leading cause of death for startups,” Ross Mayfield, co-founder of SocialText once quipped.  Obviously, if you run a local retail business, you need a shop. But today, many kinds of businesses can work virtually and  need not saddle themselves with fixed lease costs in the first 6 months.

Hiring Employees - As famed tech investor Paul Graham writes, “The classic way to burn through cash is by hiring a lot of people. This bites you twice: in addition to increasing your costs, it slows you down.”  Adding employees requires you take the time to bring people on board, communicate with them so they understand the vision, and allow time for them to get acclimated. In some businesses, such as a restaurant, you MUST hire if you expect the business to run. But many other kinds of businesses are better off focusing on product development, marketing and/or sales before hiring a lot of people.  Plus, you want to give yourself the time to select the best talent for “permanent” hires; go with freelancers and contractors whenever possible in the first 6 months.

 A Too-Ambitious Website - Get a website up early.  But unless your business IS a Web technology business, keep it small and modest at first.  Invest in a good template design, and keep the number of pages down until your business has more of a track record.

Too Much Time Blogging - Newbie business owners lacking clients (and with excess time on their hands) often make the mistake of trying to become the next Huffington Post. Even if you’re not spending money, you’re spending something just as precious: time. Limit your writing time and put more effort into closing sales.

Paid Networking Groups - I am not a fan of paid networking or referral groups such as BNI.  But if you’re considering one, at least hold off joining until you figure out whether you really can benefit from one. Try Meetups instead – they are either free or charge only a nominal fee.

Document, presentation and spreadsheet software – With all the free online software services, you should be spending little or nothing at first for these. As your business grows you can selectively upgrade to meet specific needs.

Public Relations - Don’t get me wrong, PR is valuable. But in the first 6 months you’re still figuring out your startup’s “story” and how to frame it.  Until you’ve gone through that process don’t waste your money or the PR professional’s time.

Raising money - Some startups will never get off the ground without investment – but that’s not most startups. Unless you are part of the tiny minority with the kind of high-growth business likely to attract investors, or you are planning to buy into a franchise and need the franchise fee, focus on getting customers instead.  Raising money is a full-time job in and of itself, and it distracts the founder from other things in the business.

Large print runs - For brochures, sell sheets, mailers and other items: prepare and print in small quantities.  Invariably you will refine your business and your marketing materials after the first 6 months. You may end up focusing on a narrower niche or revising your pricing. You want to be nimble, not locked in to a 3-year supply.

Web conferencing software –  Holding meetings and sales presentations remotely can be valuable.  But all those $24/month expenses for software services  can quickly add up to hundreds of dollars monthly. Explore free options that may fit your situation:  Google Hangouts, AnyMeeting or OoVoo are 3 possibilities.

Conference call bridge - Try a service like FreeConference.com instead of paying for a conference bridge service.  Couple it with Google Talk, and you don’t even have to pay long distance charges (calls to phones in the US and Canada are currently free).

Collaboration, CRM, sales management and other software – Just the process of evaluating and choosing software packages can take hours, even days – why get distracted?  If it’s a process improvement type of software and  not core to your business, it can wait 6 months.

Shop – really shop – for deals – Many vendors offer loyalty program discounts, or discounts provided by official partners of the vendor.  Don’t buy anything until you’ve first checked websites of your key vendors to see what offers and programs may be available.

Invention services —  If you have an invention that you think could be valuable, run, don’t walk, to a patent attorney – not to an invention promotion service. U.S. patent law recently switched to a first to file system. You could lose rights by not taking the correct steps promptly, and only an attorney can advise you.

Trademark filings – Filing for a trademark usually doesn’t have the same urgency as with a patent. In fact, by consistently using your mark over time you establish stronger rights. In the first six months a trademark registration is not an essential expense.

Advertising - Advertising takes money. Besides, a lot of startups are still figuring out what they are doing in the first 6 months.  Instead, ramp up your social media presence during this time. You can connect with your audience and develop more of a two-way dialogue during this time, gaining feedback from your target audience as well.  If you must advertise, experiment with low cost alternatives such as Facebook Promoted Posts and Twitter Promoted Tweets.

Finally, I’d like to also point you to two additional resources:

How to save on expenses in a small business.

Ten ways to save money in your business.

Image: Startup costs

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Anita Campbell - CEO


Anita Campbell Anita Campbell is the Founder and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses, and also serves as CEO of TweakYourBiz.com.

10 Reactions

  1. I second the comment about a too-ambitious website. You can get a website 80% there in a relatively short amount of time and the last 20% seems to drag on indefinitely. Once you’re at 80% push it live and move on.

  2. Great tips here thanks for sharing! All too often I see small business owners attempting to build a webstore that rivals Amazon, its not going to happen especially if you are a novice web designer.

  3. It really worked for me spending as minimum as possible on most of the things mentioned above at the start. However it’s absolutely critical to realize the point at which one has to shift the approach and start spending as well.

    I probably left it too late, over a year and had multi-tasked to death on all fronts. One fine morning realised the fact I havev to spend and bang saw the difference in productivity and growth in a very short span.

    Thx for the wonderful tips.

  4. Hi Anita,
    Great tips. I agree with you on travel time. In-person networking is often touted, but if you do business over great distances or even just around a region, Skype can give you that face-to-face experience without lots of time-consuming visits to prospects, customers, clients or suppliers.

  5. This is a great article. I especially like the emphasis on not spending on software, a website, and any other PR and marketing services. As a startup, it’s all about getting your foot in the door and spending capital on the necessities for the functioning of your business. Marketing and PR are things that can be done effectively without a huge investment.

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